Fortnightly - Jack Baileyhttp://www.fortnightly.com/tags/jack-bailey
enSpent-Fuel Fedcorphttp://www.fortnightly.com/fortnightly/2011/05/spent-fuel-fedcorp
<div class="field field-name-field-import-deck field-type-text-long field-label-inline clearfix"><div class="field-label">Deck:&nbsp;</div><div class="field-items"><div class="field-item even"><p>The Blue Ribbon Commission’s best answer for the nuclear waste dilemma.</p>
</div></div></div><div class="field field-name-field-import-byline field-type-text-long field-label-inline clearfix"><div class="field-label">Byline:&nbsp;</div><div class="field-items"><div class="field-item even"><p>John A. Bewick</p>
</div></div></div><div class="field field-name-field-import-bio field-type-text-long field-label-inline clearfix"><div class="field-label">Author Bio:&nbsp;</div><div class="field-items"><div class="field-item even"><p><b>John A. Bewick</b> is <i>Fortnightly’s</i> contributing editor and formerly was secretary of environmental affairs for the Commonwealth of Massachusetts. He holds advanced degrees in nuclear science and business management.</p>
</div></div></div><div class="field field-name-field-import-volume field-type-node-reference field-label-inline clearfix"><div class="field-label">Magazine Volume:&nbsp;</div><div class="field-items"><div class="field-item even">Fortnightly Magazine - May 2011</div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even"><p>For America’s nuclear power operators, the future looks more uncertain than it has for almost 30 years.</p>
<p>Among all the complex political, financial and technical issues affecting the country’s nuclear future, the spent-fuel dilemma has proved to be one of the most difficult. However, just as the Department of Energy’s Blue Ribbon Commission on America’s Nuclear Future (BRC) prepares to issue its recommendations for a new approach to spent-fuel management, the Fukushima disaster has focused tremendous public attention on nuclear risks—adding pressure to a problem that already was nearing critical mass.</p>
<p>With the insistent media focus on details of the Fukushima-Daiichi failure, American citizens have learned that spent nuclear fuel pools aren’t protected by containment, and that many such pools have exceeded their designed capacity. This awareness has increased fear of radiation exposure, and fueled growing opposition to nuclear power. Recent polls show support for nuclear power has diminished drastically since before the Fukushima disaster. <i>(See “Nuclear Power in US: public support plummets in wake of Fukushima crisis,” Christian Science Monitor, March 22, 2010)</i>.</p>
<p>This change in support arrives just one year after President Barack Obama abruptly canceled the Yucca Mountain project, leaving DOE without a credible long-term plan for the permanent disposal of U.S. spent nuclear fuel, pursuant to its obligations under the Nuclear Waste Policy Act (NWPA) of 1982. Lawsuits filed by nuclear operators claim damages now reaching $1.8 billion, with the federal government’s legal exposure to such litigation projected to balloon to more than $13 billion over the next decade. According to Kim Cawley with the Congressional Budget Office, each year of delay adds between $300 and $400 million in liabilities to the budget deficit, at a time when Congress is paying intense attention to deficits.</p>
<p>In this context, public trust and confidence in nuclear power seems unlikely to be restored unless, among other things, the federal government defines a credible path forward for developing a repository for spent nuclear fuel. Tasked with finding this path forward, the BRC has been engaged in hearings and technical investigations for more than a year, with draft recommendations expected to be released this summer. Sources tell <i>Fortnightly</i> the BRC likely will advise the federal government to create a new entity to manage disposal of spent nuclear fuel—probably a federal corporation (fedcorp) modeled on TVA.</p>
<p>A spent-fuel fedcorp could remove the constraints of the annual congressional budget cycle, allowing predictable annual financial support and improving the odds that a safe and effective future can be crafted for long-term management of depleted fuel rods and other radioactive materials. Similar approaches in Sweden and Finland have succeeded in moving their spent-fuel storage projects toward construction. And such a fedcorp—the Nuclear Fuels Management Corp.—was proposed in Congress by Sen. George Voinovich (R-Ohio, now retired), first in 2008 ((S.3661), <i>The United States Nuclear Fuel Management Corporation Establishment Act of 2008</i>), and most recently last year (S.3322), with a companion bill sponsored by Rep. Fred Upton (R-Mich.), who now chairs the House Energy &amp; Commerce Committee.</p>
<p>Although the Fukushima crisis might have delayed or even ended the nuclear renaissance, it also has intensified the urgency of fuel-cycle issues. “Spent fuel is one issue that has been on the table in this country for a long time,” Voinovich told <i>Fortnightly</i>. “It has ping-ponged back and forth, and it’s now time to deal with it forthrightly.”</p>
<h4>Why Fedcorp?</h4>
<p>Federal agency management of such a large and complex project through the Department of Energy has failed to produce a spent-fuel storage solution, although the last 20 years have seen many attempts. Numerous factors have conspired to prevent a successful outcome.</p>
<p>First, annual appropriations by Congress fail to insure a consistent level of funding, as priorities within Congress change over time. Plus, executive-branch priorities also change over time; the spent-fuel project has rarely been considered a major federal priority in the last 20 years. It has never been a primary focus of DOE, whose mission is large and complex with multiple priorities.</p>
<p>Moreover, the skill sets at government agencies are different from those in business. As such, DOE’s people arguably lack the expertise, experience and background needed to manage and complete large construction projects.</p>
<p>Also, the siting process adopted by Congress in 1987 proved to be flawed when Congress chose the Yucca Mountain site without adequate technical knowledge of the specifications for such a site or of the geological characteristics of the site. Additionally, by dictating the site without sufficient involvement of either the local or state communities affected, the government generated instant opposition to the project—and that opposition has been unremitting. The ultimate consequence of this choice was the cancellation of the Yucca Mountain project. But more broadly, a top-down federal siting process that discounts local control or input has added to general public resistance to such facilities, and makes it unlikely that other locations will welcome what’s perceived as a national hazardous-waste dump.</p>
<p>Further, designing and constructing the facility turned out to be more technically complex than anticipated, perhaps because there was an assumption it would be easy compared with designing, building and operating a nuclear power plant. But whatever the reason, unexpected technical challenges increased development costs, and pushed Yucca Mountain’s schedule beyond a horizon that could receive consistent support by a federal government that tends to change hands approximately every four years.</p>
<p>Finally, DOE’s failure to begin accepting spent nuclear fuel as required by the NWPA has added to public distrust of nuclear power, since the public sees no credible solution for long-term disposal of spent fuel in a geologically safe environment.</p>
<p>A spent-fuel fedcorp could bring a fresh approach to decision making, and it would benefit from a more stable, long-term funding framework. Additionally, the idea of a fedcorp, at least in principle, enjoys strong support from the industry and its lawmakers. The Nuclear Energy Institute (NEI), representing the utilities that own nuclear power plants, favors the fedcorp model <i>(See “Rethinking Spent Fuel,” February 2011)</i>. Some prominent state regulators are on the record supporting a fedcorp, including Michigan Public Service Commissioner Greg White; and of course the current chairman of the House Energy Committee co-sponsored the Voinovich bill.</p>
<p>However, by itself, a federal corporation structure shouldn’t be considered any guarantee of success, as the failures and foibles of some federal entities have illustrated. The U.S. SynFuels Corp. of the early 1980s provides an instructive example. The project to produce synthetic fuels, primarily from coal, lost its mission when its primary driving force vanished—<i>i.e.</i>, the energy crisis ended, and petroleum prices dropped below the cost of the new fuels to be produced. And another example, Amtrak, continually suffers from the uncertainties of annual congressional appropriations.</p>
<p>There are, however, successful examples of corporations created as public entities with policy direction from Congress, such as the Tennessee Valley Authority (TVA) or more recently the U.S. Enrichment Corp. (USEC)—which was formed by the federal government in the early 1990s, and privatized in 1998.</p>
<p>Both successful and unsuccessful examples provide useful lessons. Several key steps stand out as being critically important in the effort to create a successful fedcorp to manage spent nuclear fuel.</p>
<h4>Step 1: Policy Mandate</h4>
<p>A central question for any new government corporation involves resolving how policy is set, and what functions and responsibilities accrue to the entity. In short, would the fedcorp be expected to craft policy on managing spent fuel, or would it receive such policy from the government?</p>
<p>Jack Bailey, TVA’s director of nuclear operations, argues that Congress and the administration—and not the board of a nuclear fedcorp—must bear the responsibility to establish America’s spent-fuel policy.</p>
<p>“We wouldn’t advocate that this fedcorp in any way establish policy,” Bailey says. “They are merely a tool to implement policy. That direction comes from the administration or the Nuclear Waste Policy Act, or some other legislative vehicle to establish overall policy.”</p>
<p>Bailey does, however, specify functions to be carried out by the fedcorp. “The [fedcorp’s] board—and the management that it would hire—need the flexibility to implement policy as best they see fit, and to manage the money that’s put into the fund in a way that’s most efficient toward achieving the results of the corporation.”</p>
<p>In other words, the fedcorp’s mandate should be firmly established—but it should also give the fedcorp the flexibility it needs to get the job done right.</p>
<h4>Step 2: An Independent Board</h4>
<p>Like any successful corporation, a nuclear waste fedcorp would need strong governance and management expertise. “The board structure needs to include people who understand business,” Bailey says. “It can’t all be political appointees, for example, who have really no knowledge or interest in the business.”</p>
<p>Additionally the fedcorp board should include representation from major stakeholder groups, who will ensure the corporation is directed and managed in an independent way. According to Bailey, TVA has been most successful “when the board has had the ability to act on behalf of its mission without having to worry about a lot of extraneous things, whether they be political or other issues.”</p>
<p>Of course, nuclear waste policy is an intensely political subject, and the fedcorp would need people capable of managing the public-interest aspects of the corporation’s mission.</p>
<p>Some witnesses speaking before the BRC advocated having representatives of the public on the fedcorp board. Others suggest this might be unnecessary, and that simply ensuring proper regulatory oversight by the NRC and EPA would satisfy the need to ensure fair and impartial review of the corporation’s actions. “Remember, any decision [the board members] make is going to be under the National Environmental Policy Act (NEPA), which requires them to engage the public and the environmental groups that might be concerned,” Bailey says. “So it’s going to be a very public process.”</p>
<p>Also, last year’s Voinovich bill specified that the National Association of Utility Regulatory Commissioners (NARUC) would contribute two members to the proposed board of directors. This provision was intended to ensure the interests of customers and state governments are represented in the fedcorp’s decisions.</p>
<h4>Step 3: Independent Funding</h4>
<p>Assuring the continuity of funding from year to year is the most compelling reason to create a new entity that has direct access to the annual revenues from the Nuclear Waste Fund. Without such funding, consistent progress on construction of a repository can’t move forward at a reliable pace. It’s important for public reassurance and to support the huge, long-term financial commitments involved in constructing a spent-fuel repository—and not let the constantly shifting political winds in Washington affect those commitments.</p>
<p>The Nuclear Waste Fund has been the designated repository for ratepayer and utility fees since 1982, with accrued funds (allocated within the federal budget) of about $25 billion, and annual payments of about $750 million. To date, about $10 billion has been spent toward the construction of a permanent repository, mostly on Yucca Mountain.</p>
<p>Both the corpus of the Nuclear Waste Fund and the ongoing ratepayer payments logically might become the principal financial assets of a nuclear waste fedcorp. But transferring either accrued funds or annual contributions to a new fedcorp entity isn’t a trivial matter. For one thing, the Nuclear Waste Fund is earmarked for a permanent repository—as opposed to other options, such as interim storage or on-site casks, for example. Allowing the fedcorp to pursue the most pragmatic approach might require some legislative changes in the fund’s charter.</p>
<p>But perhaps more importantly, the fund presents a difficult budgeting matter for Congress and the Office of Management and Budget (OMB). The issue has caused difficulties for previous efforts at reforming the way the federal government manages the Nuclear Waste Fund. In April 2006, DOE Secretary Samuel Bodman proposed an ambitious plan for managing nuclear spent-fuel and high-level waste, and that plan ran aground reportedly in part because OMB objected to transferring dollars from the Nuclear Waste Fund out of the federal balance sheet. “Funding reform is necessary to correct a technical budgetary problem that has acted as a disincentive to adequate funding,” Bodman stated.</p>
<p>The issue hasn’t improved since 2006. In testimony before the BRC in February, Mike Telson, DOE’s former chief financial officer, said his budget committee and the OMB had engaged in “Talmudic” discussions of this issue—implying such discussions were complex and could’ve gone on forever. Likewise Joe Hezir, a senior official at OMB for decades, explained that budgeting rules have become more restrictive and adverse in the context of transferring funds to a fedcorp. He said:</p>
<p>Such budget conflicts, however, aren’t necessarily deal killers for funding a spent-fuel fedcorp. Bailey of TVA, for example, argues that the $25 billion corpus of the Nuclear Waste Fund isn’t immediately needed to initiate a fedcorp. Annual ratepayer fees would be adequate to get the fedcorp started, and the government could transfer the corpus of the fund to the fedcorp books later—or even leave the fund where it is, and use that fund <i>in situ</i> as an asset to secure bonds issued for financing the fedcorp’s work.</p>
<h4>Step 4: Defined Liabilities</h4>
<p>The major liability that arises in creating a fedcorp involves the federal government’s failure to meet its obligations under the NWPA to assume responsibility for managing spent fuel beginning in 1998. Several utilities and state regulatory agencies have successfully sued the government for compensation arising from its violation and their additional costs for onsite spent-fuel storage. Exposure to this liability would prove problematic for a spent-fuel fedcorp.</p>
<p>In his BRC testimony, Phil Sewell, senior vice president of USEC, reinforced the need to be precise in identifying liabilities and assets as a key component of a making a new fedcorp successful. Further, Bailey of TVA says that no matter where the responsibility lands, paying the federal government’s damages from the waste fund would be indefensible from a legal and policy standpoint. “Essentially [it would be] asking the utilities to pay for their own lawsuit victory,” he says. “Because the money they’re taking is the money we’re paying in. That makes no sense at all.”</p>
<p>And indeed, a federal court in 2002 ruled that settlements from these suits must come out of the Department of Treasury judgment fund, rather than from the Nuclear Waste Fund.</p>
<p>But a fedcorp could also find itself holding the bag for other federal liabilities. For example, DOE has spent more than $7 billion on Yucca Mountain, and that work carries certain liabilities and responsibilities. Arguably they rest with DOE, and not a new entity without any involvement at Yucca Mountain.</p>
<p>If a fedcorp is created, however, then at some point in the future it will assume liability under the NWPA for the federal obligation to take spent nuclear fuel. So in defining fedcorp’s liabilities, policy makers will need to establish a reasonable timeline during which NWPA liabilities transfer to the fedcorp.</p>
<h4>Step 5: Collaborative Approach</h4>
<p>The existing siting process, established by Congress in 1987, hasn’t worked. Instead, it has generated strong opposition from the State of Nevada, led by Senate Majority Leader Harry Reid (D-Nev.). Also, problems that were unknown when the Yucca Mountain site was selected—including water intrusion and cracks in the mountain—have raised issues about its appropriateness as a repository that must, in effect, last forever.</p>
<p>The BRC held hearings at locations that illustrate both success and failure at siting similar facilities. Their investigations took the BRC to Europe and across the United States, and included testimony from many experts on siting issues—as well as from those who express grave concerns and fears about such siting. Almost universally, public officials—from mayors to governors to state legislators—demand a say in approving such sites. Some demand a binding veto. Others ask for a permitting role. Some want the Congress to dictate a site, while others urge a competition from local communities and states for a site with huge financial bonuses—as was the case in Sweden and Finland, where there has been permanent repository siting success <i>(see “<a href="http://www.fortnightly.com/fortnightly/2010/11/life-after-yucca">Life After Yucca</a>,” November 2010)</i>.</p>
<p>In any case, a spent-fuel fedcorp seems likely to succeed only if it can develop a new, collaborative approach to siting nuclear waste facilities. Also, to the degree the fedcorp considers interim storage options, it would need some way to establish credibility that “interim” isn’t a euphemism for “permanent” <i>(see “Tough Questions for Fedcorp”)</i>.</p>
<p>In the <i>Plan D for Spent Nuclear Fuel</i> report—produced by a group of academics, led by Prof. Clifford Singer at the University of Illinois at Urbana-Champaign—a key recommendation is that “every shipment of spent nuclear fuel material should be accompanied by a payment into a Permanent Fund, to be held by the recipient state as long as that material stays in the state… States would receive interest earnings on the Permanent Fund balance beyond any needed to maintain the minimum balance.”</p>
<p>The <i>Plan D</i> report also argues against a single long-term storage site—<i>e.g.</i>, the so-called “monopoly” approach that failed at Yucca Mountain. “A monopoly situation would generate tension within the state and with the federal government over whether the state had obtained adequate compensation,” Prof. Singer wrote. “This could lead to delays or even failure of the whole project again.” He suggested that a more successful process might involve about six finalist states, competing for two or preferably three repository site licenses—with an equal number of spent-fuel aging facilities to be licensed at repository sites.</p>
<h4>Clean Slate</h4>
<p>If the BRC recommends the federal government create a fedcorp to take over the process of siting a repository for spent nuclear fuel, it could establish a clean slate for resolving America’s nuclear waste dilemma. Properly structured, a fedcorp would allow a more rational and sustainable approach to the problem.</p>
<p>However, in order for it to succeed, the mission of such a fedcorp must be clearly defined, its powers carefully delineated, and its financing constructed so as to avoid the delays that have hampered DOE efforts to date.</p>
<p>A spent-fuel fedcorp would face a panoply of complexities in management, funding, legislative authority and structure, as well as legal and financial liabilities—and that’s before it even considers the technical and operational issues of siting, building and running nuclear waste facilities. This combination of complexities and difficulties has stymied progress by the DOE, but a dedicated fedcorp that’s more flexible and sustainably financed might be better positioned to tackle this generational challenge.</p>
<p>And now might be precisely the right time for the fedcorp idea.</p>
<p>A convergence of failures—<i>i.e.</i>, the accident at Fukushima, the cancellation of Yucca Mountain as a permanent repository for spent fuel, and the growing budget impact of litigation settlements related to DOE’s non-performance on its NWPA obligations—already represents a call for action on the safe storage of spent fuel. If proponents of a fedcorp approach are correct, a forthcoming BRC recommendation—and a federal decision to act upon it—could begin the process of turning these failures into a new beginning for America’s policy on nuclear spent fuel.</p>
</div></div></div><div class="field-collection-container clearfix"><div class="field field-name-field-sidebar field-type-field-collection field-label-above"><div class="field-label">Sidebar:&nbsp;</div><div class="field-items"><div class="field-item even"><div class="field-collection-view clearfix view-mode-full"><div class="entity entity-field-collection-item field-collection-item-field-sidebar clearfix">
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<div class="field field-name-field-sidebar-title field-type-text field-label-above"><div class="field-label">Sidebar Title:&nbsp;</div><div class="field-items"><div class="field-item even">&lt;b&gt;Fedcorp: Key Elements &lt;/b&gt;</div></div></div><div class="field field-name-field-sidebar-body field-type-text-long field-label-above"><div class="field-label">Sidebar Body:&nbsp;</div><div class="field-items"><div class="field-item even"><!--smart_paging_autop_filter--><!--smart_paging_filter--><p>When Philip G. Sewell, senior vice president of U.S. Enrichment Corp., testified before the Blue Ribbon Commission on America’s Nuclear Future in February 2011, he addressed what he considered to be the key elements for the establishment and operation of a successful government corporation. They included legislation, corporation assets, existing contracts, the role of the U.S. Treasury, delineation of liabilities, a regulatory oversight path, strong management, and a viable cost structure. Sewell advised:</p><p>• The enacting legislation must be thorough enough to provide the corporation with legal standing to perform its business, establish a strong and independent corporate governance structure, and provide it with means (financial, personnel, regulatory) to be an effective business.</p><p>• The transfer of assets and a clear definition of the value of those assets is necessary to support the organization’s future viability.</p><p>• The government must transfer existing contracts (<i>i.e.</i>, customer, power, services) on favorable enough terms to support business operations.</p><p>• The role of the U.S. Treasury in the management of the corporation’s assets, cash and returns to the government must be defined.</p><p>• There must be a clear delineation of liabilities between the government and the new corporation.</p><p>• A clear regulatory oversight path for immediate term and long-term management of spent nuclear fuel must be established.</p><p>• The new entity needs a strong mix of experienced managers from private and government sectors.</p><p>• There must be a viable cost structure that will support its operations.–JB</p><p> </p></div></div></div> </div>
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<div class="field field-name-field-sidebar-title field-type-text field-label-above"><div class="field-label">Sidebar Title:&nbsp;</div><div class="field-items"><div class="field-item even">&lt;b&gt;Tough Questions for Fedcorp &lt;/b&gt;</div></div></div><div class="field field-name-field-sidebar-body field-type-text-long field-label-above"><div class="field-label">Sidebar Body:&nbsp;</div><div class="field-items"><div class="field-item even"><!--smart_paging_autop_filter--><!--smart_paging_filter--><p>Policy makers considering possible approaches to creating a spent-fuel fedcorp face a critical question, whose answer could spark a potential firestorm of controversy. Specifically, would the fedcorp be authorized to consider all the possible ways to deal with spent fuel, or would its mandate allow only a narrow set of acceptable solutions?</p><p>If the fedcorp gets a broad mandate, then it will have to consider two fundamental questions. First, should we recycle our spent nuclear fuel, the way they do in France and other countries? And second, should storage options include only the possibility of a permanent repository like Yucca Mountain, or should we consider potential interim-storage solutions.</p><p>With regard to the first question, the prospect of recycling or reprocessing spent fuel opens the door to a complex and provocative debate. Specifically, current reprocessing systems are too expensive to be justified on a purely economic basis; in other words, fresh fuel is much cheaper than recycled fuel, even when avoided disposal costs are factored into the price. However, the other side of the argument suggests that current economics might not prevail. Following this rationale, recycling should be part of a long-term plan for spent-fuel management, if only because nuclear fuel represents a finite resource. At the very least, any approach to managing spent fuel shouldn’t foreclose the future possibility of reclaiming the large remaining energy value in stored nuclear waste.</p><p>George Dials, executive vice president of B&amp;W Technical Services Group and former director of the DOE Carlsbad Field Office, told the Blue Ribbon Commission on America’s Nuclear Future (BRC), “I truly believe we are going to need all the energy in the used nuclear fuel that we have in the long-term future for this country.” In his written testimony, Dials stated that a once-through disposal solution “is counter to establishing a complete, closed nuclear fuel cycle… [W]e must establish a commercial nuclear fuel reprocessing/recycling enterprise to sustain our nuclear power capabilities.”</p><p>In addition to hearing such testimony, the BRC visited nuclear power plant facilities in France, and learned about Areva reprocessing technology and facilities in that country. If those actions provide any clue, it’s possible the BRC’s recommendations will at least leave open the door to reprocessing as a solution for future consideration.</p><p>However, economic viability isn’t the only issue affecting the recycling option. The other major issue is proliferation risk. To the degree reprocessing yields plutonium (Pu), it triggers a complex set of policy questions—not only domestic policy, but also U.S. obligations under international non-proliferation treaties dating back to 1969.</p><p>The Blue Ribbon Commission discussed reprocessing spent fuel and proliferation concerns at a hearing in October 2010. Although the hearing spawned many disagreements, one clear fact emerged: If and when a fedcorp addresses the question of whether to pursue reprocessing on any level, then it also will face the question of how to deal with proliferation concerns. As James M. Acton of the Carnegie Endowment for International Peace told the BRC, “This fuel cycle choice would send the message that reprocessing was an essential part of a modern nuclear energy program and enhance the risk that other states would develop PUREX”—<i>i.e.</i>, technologies that produce Pu as a by-product.</p><h4>Interim vs. Permanent</h4><p>In principle and in statute, U.S. policy on spent-fuel management requires the federal government to assume possession of commercial nuclear waste and manage it in a permanent repository. In practice, however, U.S. nuclear operators are storing almost all of their spent fuel onsite—much of it in pools of water, and some in dry casks. Although water pools are supposed to provide only temporary quarters to allow fuel rods to cool down, dry casks are considered an interim solution, which allows nuclear generation to continue while a permanent repository is developed.</p><p>Now, a key question affecting a nuclear waste fedcorp will be whether it can only build permanent storage, or whether one or more centralized interim storage facilities are allowable. Interim storage offers some important advantages—namely an interim facility can be built much more quickly than a permanent repository, and it would provide breathing room for policy makers to define workable long-term solutions—<i>i.e.</i>, either spent-fuel reprocessing, permanent geologic sequestration, or both.</p><p>On the other hand, interim storage would add substantial costs and potentially contentious transportation requirements to the overall challenge of managing spent fuel. It also creates the perception—and arguably the reality—that interim sites would become <i>de-facto </i>permanent sites, posing long-term security and public health concerns. Rather than solving the problem, interim storage might in effect be nothing more than a costly exercise in reshuffling.</p><p>The BRC considered these issues in its deliberations before the Fukushima crisis happened. Since then, risks involving onsite storage of spent fuel have been exposed to the glare of public attention—adding pressure to the BRC’s mission and perhaps changing its perspective on how to prioritize various options.</p><p>In short, the Fukushima disaster has raised a sense of urgency about resolving spent-fuel issues, and potentially driving the BRC—and any prospective nuclear waste fedcorp—toward solutions that reduce the risk of radioactive releases sooner rather than later.–JB and MTB</p></div></div></div> </div>
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<a href="/tags/barack-obama">Barack Obama</a><span class="pur_comma">, </span><a href="/tags/clifford-singer">Clifford Singer</a><span class="pur_comma">, </span><a href="/tags/commission">Commission</a><span class="pur_comma">, </span><a href="/tags/congress">Congress</a><span class="pur_comma">, </span><a href="/tags/department-energy">Department of Energy</a><span class="pur_comma">, </span><a href="/tags/doe">DOE</a><span class="pur_comma">, </span><a href="/tags/doe-secretary-samuel-bodman">DOE Secretary Samuel Bodman</a><span class="pur_comma">, </span><a href="/tags/epa">EPA</a><span class="pur_comma">, </span><a href="/tags/fred-upton">Fred Upton</a><span class="pur_comma">, </span><a href="/tags/fukushima">Fukushima</a><span class="pur_comma">, </span><a href="/tags/fukushima-disaster">Fukushima disaster</a><span class="pur_comma">, </span><a href="/tags/fukushima-daiichi-0">Fukushima-Daiichi</a><span class="pur_comma">, </span><a href="/tags/funding-reform">Funding reform</a><span class="pur_comma">, </span><a href="/tags/george-voinovich">George Voinovich</a><span class="pur_comma">, </span><a href="/tags/greg-white">Greg White</a><span class="pur_comma">, </span><a href="/tags/harry-reid">Harry Reid</a><span class="pur_comma">, </span><a href="/tags/jack-bailey">Jack Bailey</a><span class="pur_comma">, </span><a href="/tags/joe-hezir">Joe Hezir</a><span class="pur_comma">, </span><a href="/tags/michigan-public-service-commission">Michigan Public Service Commission</a><span class="pur_comma">, </span><a href="/tags/commissioner-greg-white">Commissioner Greg White</a><span class="pur_comma">, </span><a href="/tags/mike-telson">Mike Telson</a><span class="pur_comma">, </span><a href="/tags/naruc">NARUC</a><span class="pur_comma">, </span><a href="/tags/national-association-utility-regulatory-commissioners">National Association of Utility Regulatory Commissioners</a><span class="pur_comma">, </span><a href="/tags/national-environmental-policy-act">National Environmental Policy Act</a><span class="pur_comma">, </span><a href="/tags/nei">NEI</a><span class="pur_comma">, </span><a href="/tags/nepa">NEPA</a><span class="pur_comma">, </span><a href="/tags/nrc">NRC</a><span class="pur_comma">, </span><a href="/tags/nuclear">Nuclear</a><span class="pur_comma">, </span><a href="/tags/nuclear-energy-institute">Nuclear Energy Institute</a><span class="pur_comma">, </span><a href="/tags/nuclear-energy-institute-nei">Nuclear Energy Institute (NEI)</a><span class="pur_comma">, </span><a href="/tags/nuclear-fuels-management-corp">Nuclear Fuels Management Corp.</a><span class="pur_comma">, </span><a href="/tags/nuclear-waste-fund">Nuclear Waste Fund</a><span class="pur_comma">, </span><a href="/tags/nuclear-waste-policy-act">Nuclear Waste Policy Act</a><span class="pur_comma">, </span><a href="/tags/nwpa">NWPA</a><span class="pur_comma">, </span><a href="/tags/phil-sewell">Phil Sewell</a><span class="pur_comma">, </span><a href="/tags/s3322">S.3322</a><span class="pur_comma">, </span><a href="/tags/s3661">S.3661</a><span class="pur_comma">, </span><a href="/tags/senate-majority-leader-harry-reid">Senate Majority Leader Harry Reid</a><span class="pur_comma">, </span><a href="/tags/storage">storage</a><span class="pur_comma">, </span><a href="/tags/tennessee-valley-authority-0">Tennessee Valley Authority</a><span class="pur_comma">, </span><a href="/tags/united-states-nuclear-fuel-management-corporation-establishment-act-2008">The United States Nuclear Fuel Management Corporation Establishment Act of 2008</a><span class="pur_comma">, </span><a href="/tags/tva">TVA</a><span class="pur_comma">, </span><a href="/tags/us-enrichment-corp">U.S. Enrichment Corp.</a><span class="pur_comma">, </span><a href="/tags/united-states-nuclear-fuel-management-corporation">United States Nuclear Fuel Management Corporation</a><span class="pur_comma">, </span><a href="/tags/united-states-nuclear-fuel-management-corporation-establishment-act-2008-0">United States Nuclear Fuel Management Corporation Establishment Act of 2008</a><span class="pur_comma">, </span><a href="/tags/university-illinois">University of Illinois</a><span class="pur_comma">, </span><a href="/tags/usec">USEC</a><span class="pur_comma">, </span><a href="/tags/yucca-mountain">Yucca Mountain</a> </div>
</div>
Sun, 01 May 2011 04:00:00 +0000puradmin14108 at http://www.fortnightly.comBattle of the Big Nukeshttp://www.fortnightly.com/fortnightly/2007/05/battle-big-nukes
<div class="field field-name-field-import-deck field-type-text-long field-label-inline clearfix"><div class="field-label">Deck:&nbsp;</div><div class="field-items"><div class="field-item even"><p>Why the Tennessee Valley Authority and Duke Energy chose Westinghouse’s nuclear power-plant design over GE’s.</p>
</div></div></div><div class="field field-name-field-import-byline field-type-text-long field-label-inline clearfix"><div class="field-label">Byline:&nbsp;</div><div class="field-items"><div class="field-item even"><p>Richard Stavros</p>
</div></div></div><div class="field field-name-field-import-bio field-type-text-long field-label-inline clearfix"><div class="field-label">Author Bio:&nbsp;</div><div class="field-items"><div class="field-item even"><p><b>Richard Stavros</b> is executive editor of <i>Public Utilities Fortnightly</i>.</p>
</div></div></div><div class="field field-name-field-import-volume field-type-node-reference field-label-inline clearfix"><div class="field-label">Magazine Volume:&nbsp;</div><div class="field-items"><div class="field-item even">Fortnightly Magazine - May 2007</div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even"><p>It seems the rivalry that goes back to the “War of Currents” era in the late 1880s continues to play itself out over and over again between Edison’s General Electric and Westinghouse, even in the 21st century.</p>
<p>George Westinghouse and Thomas Edison became adversaries over Edison’s promotion of direct current (DC) for electric power distribution over the alternating current (AC) advocated by Westinghouse (now owned by Toshiba) and Nikola Tesla. Edison’s low-voltage distribution system using DC ultimately lost to AC.</p>
<p>Jack Bailey, vice president, nuclear generation, at Tennessee Valley Authority explains why his organization finally decided on the Westinghouse AP1000. TVA is part of the NuStart consortium at the Belafonte site in Scottsboro, Ala., where TVA is developing a combined operating license for the Westinghouse AP1000 reactor.</p>
<p>NuStart Energy is a company owned by nine power companies, created in 2004 for the dual purposes of: 1) obtaining a construction and operating license from the Nuclear Regulatory Commission, using the never before used, streamlined licensing process developed in 1992; and 2) completing the design engineering for the selected reactor technologies.</p>
<p>“First, what do you look for?” Bailey asks. “You look at costs or potential costs, because no one knew what the costs of a new plant were at the time. You look at the risk of the design in terms of how closely it resembles your experience, which means operating as well as maintenance, and whether there are any new features we may not be familiar with.</p>
<p>“So, we were looking at two different designs primarily. We looked at the ESBWR, which was the GE design reactor, the advanced boiling reactor. It was a good design. It had active safety systems like similar plants we have today, and it already had been built. So it was relatively low risk,” he says.</p>
<p>“But from a cost point of view, it would be a little bit higher because of all of the active safety systems and the extra concrete it would take to build it, he says. Furthermore, at the time there was an additional risk in that the rest of the utilities looking at new nuclear plants were not interested in building an ESBWR.</p>
<p>“This was before South Texas decided to go down that path. But at the time we would have been the only U.S. utility that was building that particular design, and therefore we didn’t want to be in a one-of-a-kind position again in the United States, although they had been built in Japan,” Bailey says.</p>
<p>He also saw there were two problems when comparing the economics of GE’s simplified boiling reactor to the Westinghouse design, and there seemed to be potential concerns on the risk side. “One was that [the GE design] introduced natural circulation cooling through the reactor. It doesn’t have forced reactor coolant circulating pumps. And therefore you are relying on just the differentials in temperature for the water to move through the reactor. All of which is technically feasible and has been demonstrated in other applications on a smaller scale, but nothing had been done to the size and scale of that particular reactor design.</p>
<p>“We thought that would introduce some new and unusual discoveries as that path went forward. The other thing was that particular design was further behind in the licensing process than the Westinghouse AP 1000.”</p>
<p>Bailey explains that the AP1000 already had design certification from the Nuclear Regulatory Commission and that licensing risk is a big risk that everybody is worried about for new plants. “Being further down the path with all those reviews already being completed—the certainty of getting through that process was higher with the AP1000 design,” he said.</p>
<p>Furthermore, Westinghouse, he says, had simplified the safety systems for the plant to rely on passive features like gravity draining from the roof of the containment. “That reduces the cost and makes the plant simpler, more reliable in principle, and as a result you meet all of the safety requirements with margin and without having multiple active safety systems to provide those functions.”</p>
<p>Duke Energy’s Turner says his company chose the AP1000 not only for being the best reactor design, but the nuke also presented knowledge transfer opportunities because the utility operated Westinghouse technology at both its McGuire station and Catawba station.</p>
<p>“I think that you have the opportunity for more passive operating mode than you had in earlier designs,” Turner says. “It [uses] fewer pumps, valves, cable and piping. There have also been improvements in terms of how easy it is to operate and how costly it is to maintain. My sense is that because of what happened the last time with a lot of nuclear units that were begun—and some never completed—the cost increases that happened during the process. I think everyone’s sensitivity is heightened now to that issue.”</p>
</div></div></div><div class="field field-name-field-article-category field-type-taxonomy-term-reference field-label-above clearfix"><h3 class="field-label">Category (Actual): </h3><ul class="links"><li class="taxonomy-term-reference-0"><a href="/article-categories/nuclear">Nuclear</a></li></ul></div><div class="field field-name-field-members-only field-type-list-boolean field-label-above"><div class="field-label">Viewable to All?:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-article-featured field-type-list-boolean field-label-above"><div class="field-label">Is Featured?:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-image-picture field-type-image field-label-above"><div class="field-label">Image Picture:&nbsp;</div><div class="field-items"><div class="field-item even"><img src="http://www.fortnightly.com/sites/default/files/article_images/0705/images/0705-FEA1a.jpg" width="835" height="1123" alt="" /></div></div></div><div class="field field-name-field-fortnightly-40 field-type-list-boolean field-label-above"><div class="field-label">Is Fortnightly 40?:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-law-lawyers field-type-list-boolean field-label-above"><div class="field-label">Is Law &amp; Lawyers:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-above clearfix">
<div class="field-label">Tags:&nbsp;</div>
<div class="field-items">
<a href="/tags/commission">Commission</a><span class="pur_comma">, </span><a href="/tags/dc">DC</a><span class="pur_comma">, </span><a href="/tags/duke-energy">Duke Energy</a><span class="pur_comma">, </span><a href="/tags/esb">ESB</a><span class="pur_comma">, </span><a href="/tags/ge">GE</a><span class="pur_comma">, </span><a href="/tags/general-electric">General Electric</a><span class="pur_comma">, </span><a href="/tags/jack-bailey">Jack Bailey</a><span class="pur_comma">, </span><a href="/tags/nuclear">Nuclear</a><span class="pur_comma">, </span><a href="/tags/nuclear-regulatory-commission">Nuclear Regulatory Commission</a><span class="pur_comma">, </span><a href="/tags/tennessee-valley-authority-0">Tennessee Valley Authority</a><span class="pur_comma">, </span><a href="/tags/tesla">Tesla</a><span class="pur_comma">, </span><a href="/tags/thomas-edison">Thomas Edison</a><span class="pur_comma">, </span><a href="/tags/toshiba">Toshiba</a><span class="pur_comma">, </span><a href="/tags/tva">TVA</a> </div>
</div>
Tue, 01 May 2007 04:00:00 +0000puradmin13957 at http://www.fortnightly.comPower-Plant Development: Raising the Stakeshttp://www.fortnightly.com/fortnightly/2007/05/power-plant-development-raising-stakes
<div class="field field-name-field-import-deck field-type-text-long field-label-inline clearfix"><div class="field-label">Deck:&nbsp;</div><div class="field-items"><div class="field-item even"><p>Duke Energy’s Jim Turner and other utility executives weigh the odds on billion-dollar bets.</p>
</div></div></div><div class="field field-name-field-import-byline field-type-text-long field-label-inline clearfix"><div class="field-label">Byline:&nbsp;</div><div class="field-items"><div class="field-item even"><p>Richard Stavros</p>
</div></div></div><div class="field field-name-field-import-bio field-type-text-long field-label-inline clearfix"><div class="field-label">Author Bio:&nbsp;</div><div class="field-items"><div class="field-item even"><p><b>Richard Stavros</b> is executive editor of <i>Public Utilities Fortnightly</i>.</p>
</div></div></div><div class="field field-name-field-import-volume field-type-node-reference field-label-inline clearfix"><div class="field-label">Magazine Volume:&nbsp;</div><div class="field-items"><div class="field-item even">Fortnightly Magazine - May 2007</div></div></div><div class="field field-name-field-import-image field-type-image field-label-above"><div class="field-label">Image:&nbsp;</div><div class="field-items"><div class="field-item even"><img src="http://www.fortnightly.com/sites/default/files/article_images/0705/images/0705-FEA1-fig1.jpg" width="2015" height="1572" alt="" /></div><div class="field-item odd"><img src="http://www.fortnightly.com/sites/default/files/article_images/0705/images/0705-FEA1-fig2.jpg" width="2013" height="1180" alt="" /></div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even"><p>It could be described as the world’s highest stakes betting game—power generation development. Not even the recent James Bond movie, <i>Casino Royale</i>, where audiences were riveted by a climactic $100 million poker game, can touch the sums (and risks) that utility executives must face.</p>
<p>According to the Edison Electric Institute (EEI), investor-owned utilities spent $46.5 billion in 2005 and more than $60 billion in 2006 to develop new power infrastructure. U.S. utilities added 5,507 MW and announced 33,998 MW of new capacity additions in 2006. In fact, last year alone, environmental capital expenditures doubled from $3.2 billion to $6.4 billion, said EEI.</p>
<p>Looking at the forecasts for 30 years, the heavy investment required for new generation technologies clearly is a global phenomenon. According to the <i>World Energy Investment Outlook 2006</i>, power-sector companies will spend about $11 trillion dollars by 2030. “That’s for the overall power sector that includes power generation, transmission, and distribution assets,” says Andy Webster, a consultant at Accenture, adding that power generation alone will account for $5 trillion.</p>
<p>Without question, those amounts would impress even the most exclusive casino owner in Monte Carlo, especially as the odds of winning the development game are quickly changing.</p>
<p>Global resource competition is making power-plant development more expensive, and may even limit the number that any one utility in any one country can develop.</p>
<p>Duke Energy recently disclosed a cost of roughly $1.9 billion (including Accumulated Funds Used During Construction [AFUDC]) for its proposed 800-MW Cliffside coal unit in North Carolina, which translates to a price tag of $2,375/kW. In a research report, Wachovia analyst Samuel Brothwell said the price reinforces the trend of escalating costs for new-build construction materials, equipment, and labor contracts. The $1.93 billion for the one unit was almost the original cost estimate for the two plants Duke had proposed to build. Also, in late 2006, Duke Energy had to revise its price estimates for the nuclear power plant it may build in Cherokee County, S.C.</p>
<p>“We have said that the cost of constructing two AP1000 Westinghouse units could be between $4 billion and $6 billion,” said Jim Turner, president and COO, U.S. Franchised Electric &amp; Gas, at Duke Energy.</p>
<p>Turner says the utility is taking a proactive approach in trying to convey the higher costs to regulators and the public. “We are going to let everybody know, ‘Look it’s more expensive today than it was not long ago. Prices have gone up everywhere. It is a hot market for both base-load coal and for base-load nuclear and that’s the world in which we find ourselves,” he says.</p>
<p>“We’ll make it clear in the beginning that the costs estimates are higher than we expected, and then we are going to work like crazy to bring the plants in at the estimates that we put out there,” Turner explains.</p>
<p>Indeed, some nuclear experts believe that world-resource competition may put limitations on the number of nuclear plants that actually can be built in the U.S. This is the belief of Jack Bailey, vice president, nuclear generation, Tennessee Valley Authority <em>(see sidebar, “Battle of the Big Nukes,” on what nuclear designs are favored)</em>. An example is the recent spike in uranium prices, which have soared to $95 per pound, from less than $20 three years ago, as a result of supply disruptions and dwindling inventories. The Nuclear Energy Institute, which represents nuclear operators and uranium suppliers, has said if the fuel prices don’t moderate, nuclear power will be somewhat less profitable.</p>
<p>Of course, anyone that has been watching TV or reading the newspaper lately will know that far greater considerations than just input commodity prices are driving power-generation technology decisions.</p>
<p>The Supreme Court recently ruled that the Environmental Protection Agency has the authority to regulate the emission of “greenhouse gases” linked to global warming. In the meantime, talks of national carbon-emissions legislation have all but changed the economic calculus of choosing non-carbon emitting nuclear versus other technologies.</p>
<p>“Electricity demand and other factors such as global warming concerns continue to drive major investments in power-plant development,” says Accenture’s Webster. “We’re seeing an increasingly challenging environment for utilities to deliver successful plant construction projects that meet their cost, schedule, and operability objectives.”</p>
<p>That may explain TXU’s decision as part of its acceptance of a leveraged buyout offer from private equity firm Kohlberg Kravis Roberts &amp; Co. and Texas Pacific Group, to scrap plans to build a large fleet of coal-fired power plants in Texas. The coal plants were highly controversial and drew much public criticism. It also had been widely debated in the industry whether TXU would have been able to build the 11 new coal-fired power plants in Texas at an original cost estimate of nearly $1 billion a piece.</p>
<p>“As I talk with investors and others in the industry over the last year, we never totally got what TXU was doing anyway. I’m not sure I ever totally believed the cost estimates associated with their build. So, maybe I’m alone in this, but I don’t think I was very shocked that they canceled those units,” said Duke Energy’s Turner.</p>
<p>Meanwhile, perhaps because of the growing expectation of climate-change regulation, TXU in early April announced its shift to nuclear power, joining an ever growing list of utilities.</p>
<p>Currently, three other organizations—NRG Energy Inc., Exelon Corp., and Amarillo Power—have said they, too, may build nuclear plants in Texas.</p>
<p>Given climate change, it is no coincidence that utilities are placing ever greater bets on nuclear, but experts warn that the technology is not a panacea for meeting future demand.</p>
<p>John G. Rice, vice chairman, General Electric (GE), speaking at CERAweek 2007, advised against utilities looking for a silver bullet, no matter how tempting.</p>
<p>“There is not one technology. If I listen to the discussions that take place in Houston, or in Washington, or in Beijing, or in Brussels, or anyplace else where this is the subject of discussion, the one fallacy that you [hear] is that people tend to be hoping that there is going to be one solution to all of this,” Rice said.</p>
<p>Rice, who also holds the title of president and CEO of GE Infrastructure, said he has met many in the industry who are either all for nuclear, all for wind, or all for coal. “The fact of the matter is it isn’t going to be all of any one thing. It is going to be a portfolio of options,” he said. He stressed that coal, nuclear, natural gas, wind, and other renewables would all be part of the solution.</p>
<h4>Efficiency: The Safe Bet</h4>
<p><i>The Art of War</i>, penned in the 6th century B.C. by Chinese general Sun Tzu, states that “every battle is won before it is fought.” Given the escalating costs of power-plant development, many executives are trying to find ways to win more capacity without having to build. What can you achieve on demand-side management and efficiency?</p>
<p>“I’m not sure we have ever thought about energy efficiency in the way we are all about to think about it—not just the technology, but the rate-making treatment associated with that,” says Duke Energy’s Turner. This may be an oversimplification, but the idea is that utilities could book base-load energy-efficiency investments at something slightly below the avoided cost of generation, he says.</p>
<p>“Isn’t that a good thing for customers because it’s saving the need for new generation, and lets the utilities essentially earn on rate-basing energy efficiency and demand-management investment the same way that they would in building a power plant?” asks Turner. He proposes that energy efficiency be part of the integrated resource plan so such programs do not fall by the wayside after power-plant development is complete.</p>
<p>“We’re not waiting like last time, where we build generation and then got into an oversupply situation, and then tried to look at energy efficiency and demand-side management. It is going to be awfully hard to make any of those investments look cost-effective when you have an excess generation build,” he says.</p>
<p>That’s why he believes that investment in energy efficiency and demand management should be done in concert with evaluations of new generation resources so only those plants that are needed get built.</p>
<p>Turner proposes that utilities should “economically be indifferent as to whether they build generation or invest in energy efficiency.” And he has considered the possibility that utilities could become too reliant on energy efficiency and renewable alternatives.</p>
<p>“You might see companies look to expand their reserve margins so that you can count on these resources. It may well be that utilities look at increasing that 17-percent reserve margin to 20 percent,” he says.</p>
<p>In the near term, Turner says Duke Energy has been encouraging its commercial and residential customers to adopt compact fluorescent light bulbs and more efficient appliances in homes.</p>
<p>In the longer term, he says the utility is looking at installing new metering technology and is installing controls in appliances that customers “actually have in their homes, so that we have the ability to cycle on and off their appliances at particular times of the day and use new metering infrastructure as a way to facilitate that happening.” Turner would not hazard a guess as to how many power plants would not have to be built as a result of such efficiency measures.</p>
<p>But Dan Merilatt, manager of the demand-response program at Cannon Technologies/Cooper Power Systems, has worked on many of these programs and has a strong view of what can be achieved. He says many programs have garnered up to 30 percent of customers with central air conditioning, which represents a significant amount of dispatchable load control. “If you looked at that in the market nationally, that would allow maybe 10 percent of the summer-time peak demand that could be met through demand response alone or through these load-control programs,” he says. “It can be met at a cost that is about half what a greenfield combustion turbine would cost.”</p>
<p>Merilatt wouldn’t suggest that these replace combustion turbines, but as part of the supply mix, he says it is an economical way of meeting peak demand in the summer.</p>
<p>“I think these programs are full-cost in marketing and incorporating customer incentives, keeping customers engaged, and buying and installing the devices and servicing them. If you roll that up, the present value of a whole program is pretty close to half of what a combustion turbine would cost you over its life cycle as well,” Merilatt says.</p>
<p>He believes these programs bring “good value” for electric utilities because they do not discomfort customers. “Maybe less than 1 percent of customers are even aware that these cycling or control events are occurring. And those that do can probably call a customer-service center and have themselves removed from the event as the devices that are deployed are all individually addressable.”</p>
<h4>The Long Odds on Coal</h4>
<p>Even while some utility executives might be reluctant to bet on coal given impending climate-change legislation, many experts say it’s a bet they will have to make. “Carbon regulation does not mean the end of coal. I think the country would be foolhardy to think that. I think our commission in North Carolina got that very clearly,” Turner says. “To me [the TXU decision to not build coal plants] was not earth-shattering news that said, ‘Uh oh, coal plants are now off limits.’</p>
<p>“You are always going to have coal in the mix, even with TXU’s decision, even if Congress mandates carbon regulation. The country should want to have coal in the mix from an energy-security standpoint and a competitive standpoint,” he says.</p>
<p>Turner says Duke Energy has taken a novel approach to making coal a more reasonable alternative given emissions considerations. The utility gave several concessions, for lack of better word, that made coal more politically and socially acceptable, in exchange for building new coal units.</p>
<p>“We said we were going to spend up to 1 percent of our Carolinas revenues on energy efficiency investments. The number that was used in the case was about $50 million per year. We were putting our money where our mouth was on energy efficiency and demand management,” Turner said.</p>
<p>Second, Duke Energy promised to retire Cliffside units 1-4 as part of the negotiation, which would take 200 MW of significantly older, less efficient units out of operation.</p>
<p>And third, Duke Energy said it would be “prepared to retire on a megawatt-for-megawatt basis older, less-efficient coal for every megawatt of demand-side reduction that [the utility] gains from new [demand-side] programs,” according to Turner.</p>
<p>While a verification system would need to be put in place, Duke Energy has promised to retire older, dirtier units (up to the full 800 MW of Cliffside) as the utility obtains and verifies new demand-side reductions. “I think that is indicative of some of the creativity you can get to meet carbon regulation,” he says.</p>
<p>In fact, many utility executives have been exploring using biomass to refuel their existing coal-burning plants to potentially mitigate CO<sub>2</sub> effects, according to Jim Rossi, vice president, Power Generation &amp; Sustainables, at KEMA.</p>
<p>“It’s a very viable alternative as far as a partial replacement of the fuel. It’s not a complete replacement. But you can replace up to 15 percent of the fuel on an energy basis with biomass. That’s actually quite substantial. And the capital costs associated with that are generally not that large,” he says. Biomass is organic fuel such as wood, switch grass, peanut shells, or any replenishable fuel source.</p>
<p>Rossi explains that the costs of biomass for existing coal plants are nowhere near what it would cost to build a standalone 30-MW, 40-MW, or 50-MW biomass facility, which he says, “is very expensive and is just about cost prohibitive in most cases. You really couldn’t build one and generate electricity competitively.”</p>
<p>But fueling coal-fired plants with biomass, he says, is inexpensive since most of the equipment is already in operation. “You are adding very little new equipment, some storage silos, or pulverizing equipment.”</p>
<p>Whether it’s a viable option really comes down to your location.</p>
<p>“It is the location of the individual projects. Where they are located and how close they are to some good low-cost biomass resource,” he says.</p>
<h4>Rolling the Dice on Commodities</h4>
<p>Even as the industry decides how much they will bet on any power-generation technology, the containment of construction costs is first and foremost on the minds of utility executives. Many power-plant developers are not providing a fixed fee to utilities in their engineering, procurement, and construction costs due to the escalation in commodity input costs, experts say.</p>
<p>“There may be opportunities to do multi-prime type of arrangements where maybe you don’t completely rely on an EPC to do everything for you in the project. But you internally take on some of that risk and that management as well,” Duke Energy’s Turner says. He says what is important in such an environment is to keep regulators and ratepayers informed of what costs are fixed and which are not on particular commodities, or for particular services, or for particular labor costs.</p>
<p>“The commission already has asked that we update them basically every year on cost, but has invited us to update them as often as every month on cost,” he says. In fact, Turner believes it may help in working with suppliers to let them know that the utility has to go back to the regulators every month to reexamine the cost. “It may have a salutary effect on helping keeping some of the prices down,” he says.</p>
<p>Richard Ward, senior director at Cambridge Energy Research Associates (CERA), says his firm is developing an index of commodity costs associated with power-plant development as a way to bring greater transparency to the process.</p>
<p>“What we are doing actually is leveraging our experience in a methodology we developed a year ago in the oil and gas sector,” Ward says.</p>
<p>About 18 months ago, CERA noticed that costs were starting to go up in the building of oil and gas projects. “What we found is when we asked executives about it, they couldn’t summarize it. They would jump straight down to the details about the price of steel or an engineering quote that they got,” Ward says. In response, CERA developed something like a consumer price index for oil and gas projects.</p>
<p>“So, it’s a portfolio of 28 projects from around the world, and every six months we go out and re-price, almost like an Ebay buy-it-now price for this entire basket of projects, and then we roll up the cost of all those things and index it back to the year-2000 cost.”</p>
<p>The IHS/CERA Upstream Capital Costs Index (UCCI), as it is called, which tracks nine key cost areas for offshore and land-based projects, climbed 13 percent during the six months ending Oct. 31, 2006, compared with an increase of more than 17 percent in the previous six months, according to press materials. The index could provide a high-level barometer to utility executives and regulators to look at what has happened in the cost situation in the last 24 months, he says.</p>
<p>Ward says he recently got the green light from internal management as well as some external power companies to start building the index with the same methodology, but for generation construction costs in North America. He predicts that the first results from the completed index will be available by late summer.</p>
<p>When asked about the benefits of using an index, one utility executive overseeing several construction projects said, on the condition of anonymity, that it could be helpful when dealing with the state-regulatory process. “It’s probably best to be as specific as you can with the costs related to your own project,” the executive said. It’s fine to show an index related to commodity prices, but you have to be prepared to show regulators what that specifically means with regard to the project they are looking at, he said. “As long as you can explain how such an index could impact a particular project and the cost of this particular project, I think that has a positive effect.”</p>
<p>And if utility executives do manage to contain the costs and build the right plants and manage the stress, the big bets and high stakes will have been worth it.</p>
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<a href="/tags/accenture">Accenture</a><span class="pur_comma">, </span><a href="/tags/biomass">Biomass</a><span class="pur_comma">, </span><a href="/tags/congress">Congress</a><span class="pur_comma">, </span><a href="/tags/cooper-power-systems">Cooper Power Systems</a><span class="pur_comma">, </span><a href="/tags/cost">Cost</a><span class="pur_comma">, </span><a href="/tags/dc">DC</a><span class="pur_comma">, </span><a href="/tags/duke-energy">Duke Energy</a><span class="pur_comma">, </span><a href="/tags/edison-electric-institute">Edison Electric Institute</a><span class="pur_comma">, </span><a href="/tags/environmental-protection-agency">Environmental Protection Agency</a><span class="pur_comma">, </span><a href="/tags/epc">EPC</a><span class="pur_comma">, </span><a href="/tags/exelon">Exelon</a><span class="pur_comma">, </span><a href="/tags/ge">GE</a><span class="pur_comma">, </span><a href="/tags/general-electric">General Electric</a><span class="pur_comma">, </span><a href="/tags/infrastructure">Infrastructure</a><span class="pur_comma">, </span><a href="/tags/jack-bailey">Jack Bailey</a><span class="pur_comma">, </span><a href="/tags/kema">KEMA</a><span class="pur_comma">, </span><a href="/tags/nrg">NRG</a><span class="pur_comma">, </span><a href="/tags/nrg-energy">NRG Energy</a><span class="pur_comma">, </span><a href="/tags/nuclear">Nuclear</a><span class="pur_comma">, </span><a href="/tags/nuclear-energy-institute">Nuclear Energy Institute</a><span class="pur_comma">, </span><a href="/tags/storage">storage</a><span class="pur_comma">, </span><a href="/tags/tennessee-valley-authority-0">Tennessee Valley Authority</a> </div>
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Tue, 01 May 2007 04:00:00 +0000puradmin13950 at http://www.fortnightly.com